Bond Offerings Expected to Decline

Corporate and government debt issuance rose to a record $1.24 trillion worldwide in the first quarter as borrowers took advantage of low interest rates, data tracker Thomson Financial said Monday.

However, the pace of borrowing -- much of it refinancing of higher-cost debt -- is expected to slow as war concerns weigh on markets and as many companies find they don't need additional capital.

General Electric Co. was among borrowers that issued new debt in the first quarter. But GE Treasurer Kathy Cassidy in January said her company, which completed a $5-billion issue, would not borrow more at the parent-company level this year.

Investors have been eager buyers of debt from investment-grade and "junk"-rated companies alike, driving yields lower.

But the start of the war in Iraq already has tempered debt issuance. Companies sold $5.8 billion of bonds last week, the lowest weekly total of the year and less than half the $14-billion first-quarter weekly average. The previous week's sales also were below average.

"A lot of people are sitting on the sidelines, watching to see which way things are going to go," said Tripp Deal, treasurer at Coca-Cola Bottling Co. Consolidated.

Investors' hunger for corporate bonds helped shrink the extra yield companies must offer over Treasuries to draw investors to their debt.

"Companies were out to take advantage of the record lows for interest rates," said Raj Dhanda, co-head of global debt syndication at brokerage Morgan Stanley.

Investor demand for corporate debt may dry up should a protracted war lead to higher energy prices and a pullback in consumer spending, lowering the outlook for corporate profits and threatening more companies' finances, analysts said.

Some investors already are cutting their holdings. Corporate bonds made up 26% of institutional investors' fixed-income portfolios as of Friday, down from 29% a week earlier, while allocations to Treasuries swelled to 32% from 29%, according to a survey of 52 money managers by Ried, Thunberg & Co.

"There are risks that a war could lead to another recession, and then all bets are off," said Mariarosa Verde, head of credit market research in the U.S. at Fitch Ratings.